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It looks increasingly likely that Congress may put off raising the debt ceiling until next year, when the actual deadline is much closer.
One thing nobody’s talking about: That date could come sooner than expected.
Analysts have said the Treasury Department could run out of room to keep paying the government’s bills in the third quarter of next year. But some of those projections are months old and don’t take account of important policy and economic changes that could move the date up.
The Bipartisan Policy Center said in June that the government could begin to miss payments on its obligations no sooner than next July unless Congress raises the debt ceiling from the current $31.4 trillion level.
Since then, however, the Biden administration announced an extension of its federal student loan repayment freeze, and officials are reportedly considering whether to extend the pause again after a court blocked the White House’s student debt forgiveness plan. That would reduce the amount of revenue the government collects next year, potentially moving the X date sooner.
Interest rates are also projected to rise much higher next year than forecasters expected just a few months ago, as the Federal Reserve continues its campaign to rein in inflation. That adds to the government’s debt costs, forcing officials to borrow more to cover the shortfall.
It could also push the U.S. into a recession in early 2023, which would drive up automatic spending on safety net programs, such as jobless benefits and nutrition assistance, and weigh on individual and corporate tax collection.
“The developments since we made our projection in June are likely to have pushed things forward from what they otherwise would have been, but we don’t really have a good sense of how much yet,” said Shai Akabas, BPC’s director of economic policy.
Akabas said it won’t become clear how much the situation has changed until after the Congressional Budget Office releases its updated baseline forecast of the budget and economic outlook in January.
Why the extra uncertainty? Congress in recent years has suspended the borrowing limit until a specific date, giving government officials a concrete idea of when they’ll have to begin using extraordinary measures to keep paying the government’s bills, and in turn, how long those measures will last.
This time, the Treasury can legally borrow only up until a certain dollar amount. That requires their forecasts for incoming receipts and outgoing payments to be extremely precise to estimate when they’ll hit the limit — a challenge even in ordinary economic times.
“This is among the most uncertain periods that we’ve had over the past 10 to 11 years when it comes to the economic outlook and trying to project” the X date, Akabas said.
Boston Fed President Susan Collins speaks at 8:40 a.m. … Existing home sales data released at 10 a.m.
DEBT LIMIT DREAMS — White House officials aren’t optimistic about a deal to raise the debt ceiling in the lame duck session, our colleagues Ben White and Adam Cancryn reported.
But there’s still a behind-the-scenes effort to figure out a strategy for lifting the borrowing limit before Republicans take control of the House next year, one administration official tells MM.
Senate Minority Leader Mitch McConnell threw cold water on the idea of a deal this week, but a lot could change over the next month, the administration official said, especially now that we’re past the House and Senate leadership elections and the makeup of the House is becoming clearer.
If McConnell determines that House Republican leaders won’t be able to wrangle the votes in their caucus to raise the limit next year, “the prospects of it getting done in the lame duck go way, way up,” the official said.
Of course, McConnell would need to deliver GOP votes, too. Congress has to fund the government before leaving for the holidays, which could provide an incentive for some lawmakers to support a spending deal that also raises the debt ceiling.
Wishful thinking? Probably. But some in the administration still see a possible path.
BUT TELL US WHAT YOU REALLY THINK — Our Declan Harty and Sam Sutton: “Newly installed FTX CEO John Ray III blasted the bankrupt crypto exchange’s management in a court filing Thursday, writing that he had never seen ‘such a complete failure of corporate controls’ during a 40-year career of helping companies restructure — including Enron.
“’From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,’ wrote Ray, who was tapped less than a week ago to try and salvage FTX for parts.”
— Sam Bankman-Fried’s not helping his case with Ray, per WSJ: “FTX lawyers alleged that Mr. Bankman-Fried and the government of the Bahamas have worked to siphon and transfer FTX assets into accounts outside the control of management, even after the company filed for bankruptcy in Delaware last week.”
—Sens. Elizabeth Warren (D-Mass.) and Dick Durbin (D-Ill.) are demanding answers from the bankrupt crypto exchange, as Washington ramps up investigations into the sudden collapse of former billionaire Bankman-Fried’s empire, Sam also reports.
BYE BYE, BIG GOV — From your MM host: “[I]t’s a new day for Bidenomics. With Republicans set to take control of the House and Biden’s Democrats maintaining a razor-thin edge in the Senate, the president must now find a way to work with GOP lawmakers to get things done. Rather than driving the economic policy agenda on Capitol Hill, Biden will be along for the ride — forced to grapple with issues that Republicans care about, or else settle for gridlock.”
WATCH OUT, WALL STREET — Our Zachary Warmbrodt and Sam: “Wall Street loves Republican tax cuts and deregulation. It’s going to hate the GOP’s plans for 2023.
“Republican lawmakers, who will be in the House majority come January, are pressing party leaders to send a message to big financial firms: Stop appeasing the left with “woke” business practices, keep financing fossil fuels and cut ties with China. Republicans will have committee gavels and subpoena powers to back that up.”
DEAR GARY — Declan again: “Sen. Jon Tester (D-Mont.) on Thursday warned SEC Chair Gary Gensler that the agency should not impose ‘unnecessary red tape’ on family farmers and ranchers with its climate risk disclosure plan. ‘The SEC should not take any action that may lead, intentionally or unintentionally, to burdensome reporting requirements for production agriculture when their goods are part of the supply chain for a [publicly] traded company,’ Tester wrote in the letter.”
STUDENT LOANS — Our Michael Stratford: “President Joe Biden’s administration is moving to make it easier for federal student loan borrowers to discharge their debts through bankruptcy, unveiling changes that have long been sought by many Democrats and consumer advocacy groups.”
BULLARD ON RATES — FT’s Colby Smith: St. Louis Federal Reserve Bank President James Bullard “said the US central bank at ‘minimum’ will need to raise its benchmark policy rate above 5 per cent, as he warned that monetary policy actions to date have only had a ‘limited’ impact on inflation.”
SCIENTIFIC PRODUCTIVITY PROBLEM — WSJ’s Greg Ip: “[T]he U.S. already spends plenty on R&D, about 3% of gross domestic product in recent years. That exceeds the peaks of the early 1960s during the space race. But the fruits of that effort have been elusive. Total factor productivity, the best metric for innovation’s contribution to growth, grew just 0.5% a year over the past decade, half its rate of the 1960s.”
ICYMI: TIME TO TIGHTEN THE BELT — Our Blake Jones and Lara Korte: “California not long ago was reveling in a record budget surplus. Now the Legislature’s fiscal analysts are projecting a $25 billion deficit next fiscal year as tax revenues decline. The nonpartisan agency on Wednesday put the Capitol on alert by recommending state lawmakers cut spending when they reconvene in January — and even hold back some already-budgeted funding in order to avoid the shortfall.”
Vice President Kamala Harris and other senior Biden administration officials are using an Asian economic gathering to pursue closer business ties and press for higher environmental and labor standards in a part of the world where China has deep economic links. — WSJ’s William Mauldin and Keith Zhai
Ticketmaster canceled ticket sales for Friday for singer Taylor Swift’s U.S. tour as fans complained about website crashes earlier in the week and a U.S. senator raised questions about the company’s dominance. — Reuters’ Lisa Richwine and Diane Bartz
Sharp increases in interest rates are set to upend Britain’s housing market and rock the country’s already weak economy. — NYT’s Eshe Nelson